COM 240 Midterm Review Exam Complete Questions And Answers Success Guaranteed.

What is finance? - correct answer the study of how people and businesses evaluate investments and raise capital to fund them How is finance different from economics? - correct answer It addresses not only how resources are allocated but also under what terms and channels resources are allocated How do I analyze a firm? - correct answer Look at a company's: - Return on Assets - Net Profit Margin (a profitability/efficiency measure) - Total Asset Turnover (a productivity measure) Return on Assets formula - correct answer Net Income/Total Assets Net profit margin formula - correct answer net income/ sales Total Asset Turnover Formula - correct answer Sales/Total Assets What does having a low net profit margin mean? - correct answer Selling a lot for a low price ex: Walmart What does having a high net profit margin mean? - correct answer Selling a little for a lot ex: Tiffany's Return on Equity formula - correct answer Net Income/Shareholder's Equity or ROA * Leverage or Net profit margin* asset turnover * leverage Leverage Formula - correct answer Total assets / shareholders equity Simple interest - correct answer interest paid on only the original amount of principal borrowed - the same every year because it's based on the principal amount Compound interest - correct answer interest paid on any previous interest earned, as well as on the principal borrowed -based on the new yearly value Simple interest formula - correct answer I=PRT (Interest = Principal deposit x Rate x Time) Total Value Formula - correct answer =P+SI (principal + simple interest) Present Value - correct answer The current value of a future amount of money, or a series of payments, evaluated at a given interest rate Future Value - correct answer It is the value at some point in the future time of a present amount of money, or a series of payments, evaluated at a given interest rate Compound Interest: two periods - correct answer FV1 =P(1+i) FV2=FV1(1+i) or FV2= p(1+i)(1+i) = P(1+i)^2 Future value of an investment using compound interest formula - correct answer FVn=PV0(1+k)^n Financial Functions: PV - correct answer Present Value" what you get/pay at the beginning of the financial transaction Financial Functios: FV - correct answer Future Value: What you are going to get OR what you will have to pay at the end of the financial transaction Financial Functions: PMT - correct answer Payment: shows payment made each period. It remains constant over life of annuity Financial Functions: RATE - correct answer Interest rate per period Financial Functions: NPER - correct answer Number of payment periods Ordinary annuities - correct answer generate constant PMT at regular intervals for a finite period time N at the END of each period Annuities due - correct answer an annuity where the payments are received at the beginning, as opposed to end, of the period - constant payments are made (similar to ordinary annuities) Perpetuities - correct answer streams of equal payments that are expected to continue forever - constant PMT are made at regular intervals, continue to make payments forever Type = 0 - correct answer You're paying at the end of the period (ordinary annuity) Type = 1 - correct answer You're paying at the beginning of the period (annuity due) Present Value of an ordinary perpetuity formula - correct answer PV=PMT/k where k = interest rate Present Value of a perpetuity due formula - correct answer PV = (PMT (1+k))/k where k = interest rate True or False: Perpetuities do not have future or accumulated values - correct answer True Nominal Interest Rate - correct answer Interest rate quoted based on an annual period - Also called Annual Percentage Rate (APR) Effective Interest Rate - correct answer Actual interest earned or paid in a year or some other time period